Pls pls help to determine GST after selling an IP under company trust

Tax questions:
1. after selling a property under trust company receive our initial deposit of $100000 back our personal accounts. will it be considered as a personal profit and do we need to pay tax on this?
2. How will the tax be calculated of the profit which will be equally distributed to party 1 and party 2?

Scenario:
My brother-in-law came up with an idea as follows: we form a company trust name 'AFD'
-company in the names of my husband and I (we have solid incoming salaries, I am a doctor, get LMI waved)
-each party contributes $100000
Parties involved:
1: Me+husband (contributing $100000)
2. Mr X (he is a beneficiary in the company- he does contribute $100000)

Facts:
-we buy a land, build 2 torrent tittle duplex in a high growth suburb in Sydney
-land already has plans approved, quotes from 3 builders received, spoke to banks, costs estimated, brother-in-law is a REA himself
-hoping for total profit of $80k after project is completed and sold, divided equally to both parties

Tax questions:
1. after selling the property we receive our initial deposit of $100000 back our personal accounts. will it be considered as a profit and we need to pay tax on this
2. How will the tax be calculated of the profit which will be equally distributed to party 1 and party 2?

 

If you lend money to a company and the company repays you - the repayment of the loan is not taxable (get the loan documented).

A company will pay tax on the profit at the company tax rate. Shareholders will normally enjoy a franking credit for the company tax paid when the profit is returned to shareholders.

And I assume you mean CGT - not GST. GST is relevant however.

 

Hi Ross Forrester, thanks for you inputs. So we can still provide loan to the trust company even though we are the trustee and the directors?

 

A company can borrow money from a director or a shareholder. If turnover exceeds $20m you have something else you will consider.

Get the loan terms documented and clear.

 

What is a company trust?

Sounds like you are thinking of trusts with a company as trustee. If so just ignore the company completely. Sounds like you are not trustees.

1. Did you lend the trustee money? If so it would be the repayment of all loan and not taxable. If not it may be a capital distribution which may also not be taxable.

2. The trust will distribute the capital gains income to a beneficiary who will pay tax on it.


What you are proposing to do is probably not suitable in a discretionary trust so make sure you get legal advice before entering a contract.

 

What a company trust.
What is companies in the names of husband and I.
Wheres the loan guarantee.
Contribute how?
How can X be a beneficiary of the company when companies dont have beneficiaries?

What happens if the costs go over?

 

Quite a lot to consider.

1. Sounds like intention at outset is to buy, build and sell for a profit. Profit from an isolated transaction which will be subject to revenue not CGT account. So disregard any 50% CGT discount as it wont apply.

2. Consider GST. Potential to use margin scheme and how this will impact on your net development profits.

3. As @Terry_w says a DT may be awful. What happens if one party passes away during the development process ? Maybe a unit trust is better ? Or two unit trusts as tenants in common with a deed of partition ? Deed of partition might be awful however if you dont plan on keeping. Save stamp duty to pay GST ? What if one party decides it wants to keep one and rent it out ? Maybe do a cloning of the unit trust ?

Few things to think about before you get started.

 

Go see a good accountant.
In your case I feel a little knkwlodge is dangerous...

 

GST payable will depend on whether the margin scheme can be applied. Whether the margin scheme can be applied will depend on the GST treatment on your purchase of the property.

Definitely speak with your accountant or lawyer to get proper advice before proceeding.